The Benefits of Involving a Financial Expert in Mediation
Speaking from Experience
Mediation aims for parties to mutually resolve their dispute. Unlike litigation and arbitration, there is no trier of fact that determines the conclusion of a dispute. Instead, the mediator, a neutral third party, tries to help all parties meet at an amicable middle ground, which can be done through creative means of communication, collaboration and problem solving. The author shares his experience serving as a financial mediator.
Mediation aims for parties to mutually resolve their dispute. Unlike litigation and arbitration, there is no trier of fact that determines the conclusion of a dispute. Instead, the mediator, a neutral third party, tries to help all parties meet at an amicable middle ground, which can be done through creative means of communication, collaboration, and problem solving.
One of the mediator’s primary objectives is to best understand all the relevant issues and positions related to the dispute on both sides, and create open communication between the parties about these matters. In many business-related disputes, complex financial issues are central to the disagreements between the parties. It is important that both the parties explain their positions about these financial issues as clearly as possible to the mediator. That way, the mediator can make sense of the contentious complexities and offer ideas to both parties on how to reach a solution.
Some financial issues may be too complicated for attorneys or their clients to explain to the mediator. This is when a financial expert can add significant value to the mediation process. Financial experts not only have proficient knowledge on these topics, but also, they have the skills to clearly communicate complex issues to a layperson. By having a financial expert involved in mediation, the attorneys and clients are well-equipped to have the mediator better understand the issues of the matter, which could lead to favorable outcomes for all involved.
Recently, I was asked by an attorney to assist him and his client in mediation, and my involvement was instrumental to clearly convey our positions to the mediator. The case was a business dispute related to the distribution of sales proceeds of a real estate transaction. Our client, the plaintiff, alleged that the defendants failed to properly distribute his fair share of the proceeds, and that proper accounting was necessary to determine the distribution.
In our first caucus (i.e., private session) with the mediator, he told us that the defendants had provided an analysis on the distribution of the proceeds. However, he found it very difficult to follow and understand. Also, the defendants did not bring a financial expert to the mediation.
I told the mediator that I had my own analysis that demonstrates how the proceeds should have been distributed based on our client’s position of the facts. I then walked him through my spreadsheet line-by-line to show how I derived my final calculations.
The mediator was very appreciative that my analysis was digestible and easy to understand. My analysis gave the mediator his own confidence to clearly communicate to the opposing party our side’s position on the financial dispute. Furthermore, the mediator asked the opposing party to use the spreadsheet format from my analysis to explain their position on the distribution of proceeds. Therefore, my spreadsheet analysis became the key tool in reaching a settlement between the parties.
My example is only one of many ways that a financial expert’s involvement in mediation is beneficial. Other benefits include tempering parties’ emotions by providing a more objective perspective on the matter and establishing realistic expectations to strategize toward a settlement.
Because mediation is less formal than other venues such as arbitration and trial, parties can become very emotional when conveying their positions on the dispute. When tempers flare, this can make it difficult for the mediator to ensure all appropriate considerations from both sides are factored into the settlement negotiations. If complex financial issues are central to the dispute, an expert can help defuse the tensions by steering the focus back on the objective viewpoints of the matter.[1] A financial expert can do so by presenting demonstrative evidence, such as charts and graphs, that clearly communicate the financial issues. This is very effective when the demonstratives strongly support a client’s emotional position.
Speaking of a client’s emotional position, it is possible that such a stance is too unrealistic to preserve when trying to reach a settlement in mediation. A financial expert can provide a reality check for a client with a polarizing position in a dispute. An expert’s analysis can help the parties set multiple scenarios showing potential damage or loss amounts and show a range of values to assist in achieving a settlement.[2] Providing these scenarios can manage an attorney’s and client’s expectations on what can be an acceptable settlement amount.
Mediation is a very effective way for parties to resolve disputes. Parties can avoid litigation, which would save time, money, and stress. In financial-related disputes, an effective way to reach a resolution in mediation is by involving a financial expert. The mediator’s main goal is to help find a middle ground for all parties involved. Financial experts can help the mediator facilitate a favorable result for everyone through clear and effective communication.
[1] https://www.expertinstitute.com/resources/insights/best-ways-for-expert-witnesses-to-participate-in-mediation/
[2] https://www.law360.com/securities/articles/854428/5-benefits-of-using-a-financial-expert-at-mediation
Andre Castillo, MBA, CPA, ABV, CFF, CFE, is a director at CBIZ Forensic Consulting Group located in New York City, serving clients since 2016. He is a national expert in forensic accounting, litigation consulting, economic damages calculations, business valuations, and fraud investigations. From 2022 to 2023, he provided financial and forensic domain expertise as an advisor to Hudson Labs (formerly Bedrock AI), a financial research software company. Prior to joining CBIZ, Mr. Castillo started his career at KPMG, LLP, where he provided audit services to publicly traded companies in the sports and entertainment industry and the consumer products industry. As an auditor, he spearheaded the assessments for his clients’ adoptions of new accounting standards, such as ASC Topic 606.
Mr. Castillo can be contacted at (914) 610-0621or by e-mail to AndreRonald.Castillo@CBIZ.com.
